Late-payment fines 'may cost £600m'

Critics of the proposals believe the rules could be abused by poor and incorrect invoices

EU proposals for "fines" on late-paying public bodies including the NHS and councils would leave taxpayers open to a £600 million swipe by unscrupulous firms, town hall leaders have warned.

Proposals being discussed in Brussels would allow suppliers to demand compensation worth 5% of the sum concerned, on top of interest and recovery costs, if bills were not settled within 30 days.

Critics said the move would be a "licence" for the private sector to deliberately draw up poor and incorrect invoices in a bid to create delays and claw back money from the state.

The Local Government Association said the move was designed to deal with problems in other countries such as Greece but would badly hit UK services, which were highly efficient.

It questioned why the EU was targeting the public sector and not targeting private firms with the same regulation, pointing to supermarkets' imposition of payment terms of up to 120 days.

The LGA warned of a mounting bill for the red tape of processing fines, a rise in "the culture of lawsuits" and a serious threat to the relationship between the public sector and its suppliers.

David Parsons, who chairs the LGA's improvement board, said: "These plans will lead to less money going into frontline services and more going into the pockets of bureaucrats and lawyers.

"When a company can fine a public sector organisation, even if they have their details wrong on the invoice, it gives them a licence to draw up badly written bills to get more money out of the taxpayer," he said. "The proposed fining system could cost millions of pounds to administer and millions more to the taxpayer and frontline services."

Businesses reported that other firms, not public services, were the worst offenders when it came to late payment, he said.

"If these rules are serious about making the payments system work better then they should also be addressed by the EU's legal framework," said Mr Parsons. "Instead of that approach the EU seems to be sleepwalking into an unfair and grossly disproportionate system that hits key public services."